UPDATE 2-Boston Scientific to buy Atritech

Wed Jan 19, 2011 11:22am EST

* Aims for more products to treat structural heart disease

* To pay $100 million in cash upfront for private company

* Deal seen reducing GAAP earnings through 2013 (Adds analyst comment, background, byline, share price)

By Debra Sherman

CHICAGO, Jan 19 (Reuters) - Boston Scientific Corp (BSX.N), which is trying to reshape itself as it sells off some businesses and buys others, said it will acquire privately held Atritech Inc to expand its offerings in products that repair structural heart disease.

Under the terms of the deal, which is expected to close in the first quarter, Boston Scientific will make an upfront payment of $100 million in cash. Additional potential payments of up to $275 million will be made through 2015, upon the achievement of certain milestones. The purchase price assumes no cash and no debt on Atritech's balance sheet at closing.

Boston Scientific expects the acquisition to reduce earnings per diluted share by about 1 to 2 cents in 2011, 2012 and 2013, and add to earnings thereafter. On an adjusted basis, it is expected to cut earnings per share by 1 cent in 2011 and 2012, and then add to earnings.

Atritech, based in Plymouth, Minnesota, has developed a novel device designed to close the left atrial appendage in patients with atrial fibrillation who are at risk for ischemic stroke. The device, called the Watchman, offers an alternative to anticoagulant drugs for this group of patients.

St. Jude Medical (STJ.N) recently acquired left atrial appendage technology with its recent acquisition of AGA Medical. Analysts said it is too early to say which technology is superior.

Patients with atrial fibrillation, the most common type of abnormal heart rhythm, are prone to developing blood clots in an area of the heart known as the left atrial appendage. There is a risk that the clots dislodge and travel through the bloodstream, eventually blocking circulation to the brain, resulting in a stroke.

Atritech's Watchman device is designed to close the left atrial appendage, preventing clots within the appendage from being dislodged into the circulation.

JP Morgan analyst Michael Weinstein called left atrial appendage technology a meaningful new opportunity for the company, noting that atrial fibrillation affects more than 3 million people in the United States alone.

Atritech has completed an 800-patient randomized clinical trial of the device that demonstrated a 38 percent relative risk reduction for stroke, cardiovascular death and systemic embolism compared with long-term warfarin therapy.

Atritech is currently enrolling patients in another trial, dubbed PREVAIL, a confirmatory study required by the U.S. Food and Drug Administration in order to gain approval.

The Watchman is approved in Europe and was commercialized outside the United States in 2009.

Weinstein, who has an "underweight" rating on Boston Scientific shares, said to expect more deals this year, which will further pressure earnings in the near term.

"Part of our negative thesis on Boston has been based on our view that the company was likely to execute a number of early-stage acquisitions to address its growth problem and bolster an internal pipeline lacking in meaningful new technologies and market opportunities and that these deals would lead to a down (2011) year of earnings," he said.

In the past four months, the company has announced four deals, including Atritech, which are expected to cut 2011 GAAP earnings per share by 8 to 12 cents, or up to 30 percent off of an estimated 2010 base of 39 cents per share, Weinstein noted.

"As a result, we believe it will be extremely difficult for the company to grow earnings over the next 12 to 18 months," he wrote. "Beyond 2012, the question will be the ultimate impact of the 2010-2011 deals. Not all of them will necessarily be successful, but management is betting that they can add enough to accelerate growth off of a low single-digit base."

The shares were off 10 cents to $7.23 in morning trade on the New York Stock Exchange. (Reporting by Debra Sherman, editing by Matthew Lewis, Dave Zimmerman)

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